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| Worthy Notions: From the Editor |
A Secular Schism
Dwight Cass
09/01/2004
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“Forecast,” with its presumption of plausibility, may be an appropriate label
for many types of economic divination, but it is certainly too credible to
describe the fumblings in the dark that constitute government budget
projections. I prefer “prognosticate,” which brings to mind scattered chicken
bones and the bottom of a dirty teacup.
Government budget forecasts are akin
to weather predictions. The task of assembling the many factors that bear on the
outcome, weighting them, calculating their correlations and fitting them into a
model with any predictive value seems to be beyond anyone’s grasp. Those
government employees who wrestle with the problem for a living, the brave men
and women of the Congressional Budget Office, are hobbled further by rules that
limit their ability to consider any political factors. They are prohibited from
weighing even the most important variables: which party will ascend to the White
House in November, for example, or each candidate’s revenue and spending
preferences. Garbage in, as usual, leads to garbage out.
| "Prognosticate" brings to mind scattered chicken bones and the bottom of a dirty teacup. |
Remember that
government accountants forecasted in 2001 that we would enjoy a $5.6
trillion budget surplus in 10 years. Two years later, they resharpened their
pencils and realized that they were off by about $8.5 trillion.
The
government’s incompetence leaves us at the mercy of private-sector
prognosticators, most of whom are affiliated with dueling partisan think tanks
whose main concern is to buttress their rants on Sunday morning talk shows.
Their estimates tend to be even more dubious.
Whether we prefer to get our
estimates from Brookings or from Cato, it is hard to avoid the fact that our
government’s finances are, once again, under water. But unlike deficits in the
past, such as those that financed the New Deal, the Vietnam War and the Reagan
administration’s defense buildup, some economists believe our current shortfall
is not amenable to a natural solution: economic growth. Keynes, they argue,
fails us when the bulk of the government’s overspending is not designed to fund
short-term stimuli to cushion an economic downturn, but to support open-ended
commitments to politically untouchable programs with rapidly increasing costs
like Medicare and Social Security. They call our deficit a secular, rather than
a cyclical, phenomenon, which can only be tamed by tax increases, spending cuts
or both.
Those of us seeking to determine how this state of affairs should
bear on our financial decision making are in some ways reduced to the unenviable
position of the meteorologist on the local news who distills an overwhelmingly
complex problem into a simple binary question by sticking his hand out the
window. We can assume we will have another four years under an inveterate
tax-cutter, or we can brace ourselves for the tax increases promised by his
rival. (Of course, there’s a chance that President Bush may, like his father,
wilt under the fiscal pressures and raise some taxes if he is
re-elected.)
The financial planners, private bankers and analysts we
interviewed for our cover story are nearly unanimous in their expectation that
there will be some type of tax increase in the next four years. If not, we may
soon have to account for the various consequences of the deficit itself in our
long-term financial planning.
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